Perhaps Fiscal Discipline could be Presented to Calm the Bond Market?
- cornerstoneams
- 2 hours ago
- 5 min read
August 27, 2026
Things are getting serious with Treasury securities and their interest rate levels as reflected by recent actions and rhetoric from the Secretary of the Treasury, to include the monetary authorities over at the Federal Reserve.
For many years we have been chronicling the fiscal and monetary policy backdrops of the United States. The overarching point has always been centered on the inevitable ramifications of these policies being too loose and easy for many, many years; think this 21st century in particular.
Ramifications enter the socioeconomic scene in various ways, with the most obvious being ultimately higher interest rates, price inflation issues, debasement of the currency, and a decrease in national sovereignty as foreign entities hold large slices of the ever-larger amounts of the U.S. debt securities that are issued.
In an attempt to reduce upward pressure on interest rate escalation in the longer maturity spectrum of treasury notes and bonds, the Treasury Secretary in the month of August has moved to participate in Japanese yen intervention, solicited the Fed to expand the FIMA Repo Facility, which allows Japan access to dollars for more yen support, and announced a doubling of the buybacks of longer-dated treasury notes and bonds, as well as offering a “bigger toolkit” that can be used on the buybacks, which implies using the Treasury General Account (TGA) to fund larger buybacks.
Buybacks? With what money?
When most here X entity will be buying something back, it implies there is some readily available capital to do so. This is not the case with the U.S. fiscal situation as it is.
In some circles the aforementioned Treasury General Account (TGA) is being viewed as some sort of account that is holding nearly one trillion excess dollars. This view offers, or infers, that the TGA is some sort of side account that is sitting there for emergencies. Not true.
The TGA is the Treasury Department’s checking account.
Tax receipts and proceeds from treasury debt auctions move into the TGA, and payments the U.S. government owes move out of the TGA.
These are not easily overlooked payment obligations. They include well-recognized payment liabilities of the government such as social security payments, interest on the national debt, and payments to federal employees, to mention only a few.
TGA is the government’s checkbook; it is not a fund that is sitting there idly waiting for an emergency of some sort in order to be tapped. There is no near trillion-dollar fund sitting readily available to be tapped and executed to buy back longer-maturity debt as has been inferred by some outlets and officials.
Tax receipts do not come close to paying for all the U.S. government obligations; it is debt issuance that fills the void. With this, the buyback program ultimately boils down to buying older debt with what will prove to be newly created debt.
As shared above, the entire objective of this buyback approach, to include the yen intervention as well as the Fed’s FIMA repo facility to Japan, is to do everything possible to keep the longer-dated treasury notes and bonds from increasing in yield (think higher interest rates) even further than they already have via bond market participants balking at U.S. fiscal and monetary policies.
In other words, the buyback objective is an attempt to keep participants, any participants, to include foreign holders of treasuries from selling longer-dated treasury notes and bonds. If sold further, en masse, this can place further downside pressure on prices of those instruments, which in turn would increase their yields, i.e., interest rates.
What’s the Connection to Yen Intervention?
Japan’s currency has struggled notably within the currency markets over the previous several years. At times Japan attempts to do an intervention (these always amount to band aids) to prop up their currency as it trends southbound.
One source of funds to do so is to sell some of their U.S. treasuries.
As offered above, that is the bane of U.S. officials out of concern large sellers will place even more pressure on bond prices, and hence, interest rates. By the way, this is another well-worn band-aid approach, similar to the currency intervention approach when trying to support a struggling currency.
With this, the U.S. participated in yen intervention to help alleviate the need for Japan to liquidate treasuries in size.
Furthermore, the aforementioned Repo Facility from the Fed allows Japan to access U.S. dollars by pledging treasury securities that will simultaneously be held by the Fed rather than being sold by Japan out on the market.
How about some fiscal discipline rather than paper games?
Reduced to simplicity, all of the announced and executed measures taken to relieve further interest rate pressure, brought on by bond market participants continuing to be unimpressed with U.S. fiscal and monetary policies, boil down to paper games.
The true solution to this long-standing debt issue is to introduce disciplined fiscal and monetary policies. (An approach no political party or individual political officeholder is even mentioning.)
Through this market participants in the U.S. and around the world would be compelled to bid up treasury prices rather than sell treasuries or ignore them completely as an investment option based on investment analysis.
What participants are offering to D.C. officialdom is the investment analysis does not compute. They need a higher yield on treasuries to justify holding the paper.
Fiscal policies have been off the proverbial rails now for this 21st century in particular. One trillion dollars of additional debt is now stacked up in a matter of a few months! Price inflation, the bane of bond holders, is now in its 66th month of being above the Fed’s 2% price inflation target.
This massive structural problematic storyline will be fixed with paper games and band-aids?
Let’s go real time
To underline fiscal, and, through that, the monetary policy problems of this 21st century that continue right up through the current day, we have excerpted from the U.S. Treasury fiscal data site directly below.
The evidence points to ongoing results to the current day that line up with results of recent decades, which is to say, deficits stacked on top of deficits.
What is the national deficit?
A deficit occurs when the federal government’s spending exceeds its revenues. The federal government has spent $1.80 trillion more than it has collected in fiscal year (FY) 2026, resulting in a national deficit. $1,798,816,211,853
Compared to the national deficit of $1.63 trillion for the same period last year (Oct 2024 - Jul 2025), our national deficit has increased by $170 billion. 10% increase
To wrap up this edition, we thought it most telling to take in what general market participants have messaged in the month of August, seeing as August has been the period where the above policy approaches have been designed and executed.
On the long end of the treasury bond market, the area of the treasury market that the above policies are meant to influence, for its part, the 10-year note is down 10 basis points in yield, while the 30-year is down 6 basis points as of this writing. Both are rounding errors. Said differently, participants are wholly unimpressed.
Meanwhile, broadening out, as of this writing, we see gold has shot up 14% thus far in the month of August.
Other “debasement” trades have followed a similar upward trajectory. Debasement positions are trades executed that are beneficiaries of the downstream expectation of the currency losing more of its value in light of paper games offered as solutions.
The bottom line: expect further debasement of the currency as time unfolds, a price inflation backdrop that is less than favorable to the everyday citizen, and continued challenges in the treasury market courtesy of continued paper games rather than disciplined fiscal and monetary policies.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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